Retailers stick with credit offers
By Clint Engel -- Furniture Today, August 11, 2003
High Point — Were you among those concerned that furniture retailers were overusing one-year no-payment, no-down payment, no-interest offers? Afraid they wouldn't have the same powerful, traffic-drawing impact when the industry needed them most?
Well, don't look now, but those offers have mutated. Common offers these days are no payment, no down payment and no interest for nearly two years, or no down payment and no interest for three years. Or some consumers prefer to pay cash and get a nice discount off what is said to be an already low price.
Retailers are relying more than ever on credit-tied promotions in this stifling economy, but they've been shrewd enough to mix it up a little.
Seffner, Fla.-based Rooms To Go seems to be constantly adjusting its take on deferred payment. One of its most recent offers: Instead of the typical three no's (payment, down payment, interest), it substituted one and came up with no down payment (except amount equal to sales tax), no minimum purchase and no interest — for three years, or until July 2006.
Jeff Seaman, president of the 95-store Rooms To Go, declined to discuss the details or results of the program, which is outsourced to Citigroup, or even the advantages and disadvantages of these kinds of credit offers.
But he makes no apologies for them. Extended financing is a heavily used marketing strategy that no doubt has had a role in the retailer's rise to the top of Furniture/Today's Top 100 (with $1.3 billion in 2002 sales) in just a few short years.
"In general, no-no-no's have been out a long time, and I think the customer is used to buying furniture that way," Seaman said. "It's still a part of promoting in our industry."
One of the latest newspaper ads for Atlanta-based Rhodes features an appealing living room group and a series of five "no's" and three options for consumers.
They can make no down payment (except the amount equal to sales tax) and pay no interest until 2006; or they can straight no-no-no it out to 2005; or they can get a 5% discount for paying cash.
Steve Hurwitz, senior vice president, marketing for Rhodes, called it the retailer's triple offer or "Your Way" campaign. It's relatively new and has been well received.
"There are always consumers who would like a discount when they use their own cash or credit cards, so we offer a bonus discount for that," Hurwitz said.
"More importantly, we've broadened our appeal," he added. "What it's really designed to do is say, 'Look, come into Rhodes for the home furnishings you want, and we can tailor the financing any way you want it.' The credit offer becomes a component of the marketing and selling mix rather than the driving force."
And by relieving the financing pressure, Rhodes enables consumers to focus on the product instead of how they're going to pay for it.
Rhodes outsources its deferred payment program through Household Retail Services. Hurwitz would not disclose the cost of the credit offer nor compare it to the 5% discount offered to consumers who pay cash.
And while he wouldn't give a breakdown on how many consumers are opting for the cash discount vs. the credit deal, Hurwitz said, "Certainly our cash mix has been strong."
If there is a negative to the deferred payment promotions it's that a lot of retailers may be relying on them too much. There's a chance that financing will become the driving force for the business rather than just one of many marketing devices — which is one of the pitfalls Rhodes is hoping to steer away from with its current campaign.
"The automobile industry opened (the financing game) up a year and half ago and they cannot get off of it," Hurwitz said.
"Sixty months, no-interest is driving that industry now. They keep saying they're going to extend it another two months, but they've been doing that for a year now."
Some say another negative could be that retailers are taking people out of the market for furniture while they still owe money on their last purchase, or are buying business that would have come into the store eventually anyway. But Hurwitz isn't so sure.
"You could be taking people out of the market, but what you're hoping is that you're driving business at a greater rate than if you were just a cash business," he said.
Others have argued that the cost or the discount retailers pay to credit companies is too pricey and ultimately costs the consumer more money. Leslie Fishbein, president of Denver-based Kacey Fine Furniture, disagrees, saying that argument is overblown.
"The cost isn't anywhere near the 20% discount one competitor indicates," she said. "It costs anywhere from 2% to 5%."
Fishbein thinks financing offers are "a viable option to give our customers some choices."
So does Atlanta-based Havertys, which until recently had shied away from long-term deferred payment offers. In the second quarter this year, the company ran 18-month and 20-month no-interest promotions (with monthly payments required), extending its credit offer beyond 12 months for the first time in years, said Dennis Fink, executive vice president and chief financial officer. This quarter, Havertys is running no-payment, no-interest until 2005, he said.
"We are seeing that ... the consumers will come out but they do need to have a feeling that there's some sort of reason," Fink said. "The sales promotions, the credit promotions, the way we're running them around the holiday periods are tending to bring them out, and then we're getting them to loosen up and buy."
